Complex Methods Of Reward Distribution In Crypto Mining Pools

Introduction

In the previous article, we examined the path that led miners from solo mining to the crypto mining pools activity. So-called crypto mining pools allow getting a stable income. There are some different point of view though. Talking about a mining pool profitability comparison for pool owners and pool participants, we must admit that pool mining became less risky for a user but got more risky for a pool owner. The different methods of reward distribution, described in this article, are intended to resolve this problem.

It is also necessary to assess the importance of mining pool hub setup. These settings define how a reward will be distributed among the center and miners. They can be found on the official websites of mining pools listed here.

Complicated methods of reward distribution

Geometrical solution

This method relies on a serious mathematical basis and extends the idea of the Slush method used to fight hoppers. The reward is divided into constant and variable parts. A constant part of a fixed size is given to miners as a block is closed. A variable part depends on the points that a pool operator possesses at the very beginning of each round. Over time, these points value decreases the same as shares of casual miners. Thus, there is no difference when to join the pool and no sense to leave it.

Later shares cost more

This method uses several linear equations with coefficients. They might be used to set up the balance of payments between a pool operator and miners. Besides, the operator arranges the payments probability distribution with the help of the coefficients. That's how a miner’s risks are increased or decreased. Sometimes, the formula is enhanced by a logarithmic parameter that helps to slightly vary the payment balance.

Pay-per-last-N-shares (PPLNS) solution

Instead of being a separate method, this one is a family of methods that depends on mining pool hub setup. The authors of all these methods put aside the round concept. Shares were proposed to be counted for a limited time period instead of the block by block calculation. It works regardless of whether the block was received or not. This approach allows avoiding the “early mining concept”, while some PPLNS subtypes work good against hopping.

However, these methods have some flaws. For instance, miners can exploit their knowledge of future difficulty changes. Indeed, if shares are defined by the current difficulty, the reward might be defined by the changed one. Non-linear formulas of dynamic reward calculations were proposed to solve this problem.

Payment per rounds

Double geometrical method

The main task of hopping-proof methods is to untie payments from the time spent in a pool. The geometrical method solves this issue by adding variable payouts, while the PPLNS method absolutely ignores rounds. The double geometrical method uses features of both solutions. The round renewal is not ignored but partially influences the reward. A special parameter defines the proportion of payments. As in the case of the geometrical approach, nonlinear equations with parameters are applied here.

Maximum pay-per-share (MPPS) solution

The PPS solution transposes main risks to the pool operator, while participants do not risk that much. To compensate this, the system was changed so that its operator stopped suffering from losses.

The first proposal was about uniting the PPS method with the proportional one. Two separate balances are used simultaneously to perform this. Every time a miner brings a share in, the PPS balance increases. The proportional balance is calculated as soon as a new block is closed. As a result, the miner receives the minimum of two possible rewards. Thus, miners cannot use hopping to change pools.

Considering mining pool profitability comparison, this method is both acceptable for miners and the operator. Unfortunately, applying this method reduces an average reward.

Shared maximum pay-per-share (SMPPS)

This method is developed to compensate some MPPS flaws. Here, personal accounts of all participants are substituted by the general pool account. If a round is successful, this account fills up. It allows compensating PPS during unsuccessful rounds. When the account runs out of assets, PPS payments are stopped until sufficient amount of funds arrives. Many different variations of this method exist, and details of their implementation depend on specific conditions.

Unfortunately, some implementations are subjected to the constant exhaustion of the general account because mining is all about probability. Other factors like orphan blocks and hopping may have an influence on it as well.

Equalized SMPPS method (ESMPPS)

According to this method, small yet stable payouts are considered to be more preferable rather than the full ones. The pool keeps records of all payouts and miners’ shares. If it is possible to provide a complete payment, the pool will do it. Otherwise, the pool makes payments in a limited amounts, and the least compensated shares have the highest priority. Thus, newcomers rapidly reach a payout level on an equal basis with old participants.

Unfortunately, it doesn’t compensate a general negative trend. The pool operators as a rule don’t try to provide all 100% of income. Following the calculations, an approximate compensation per share value reaches 97%.

Alternative ways of reward distribution

The Recent Shared Maximum Pay Per Share (RSMPPS) shifts the payment priority into the latest shares within the general SMPPS approach.

The "Eligius" pool method modifies PPS and Slash approaches. All payouts are planned when shares are received. Once a reward reaches a certain value, the funds go to miners. In this approach, assets are commonly transferred directly to participants without an intermediate storage. In case of orphan blocks, all previous shares are considered as valid.

Full Pay-Per-Share. Here, transaction fees are taken into account. Their average value for a certain period is recorded and later added to the block reward. All other features are taken from PPS.

The Pay Per Last N Groups (PPLNSG) method is a modification of PPLNS. It sets payouts for the groups of shares, not for a single one.

The Pay on Target (POT) method considers both shares and the difficulty used by a participant to receive each particular share. No cross-miners difficulty is considered.

The Capped Pay Per Share With Recent Backpay (CPPSRB) method develops the idea of MPPS. However, it limits the reward amount not to reach a negative balance.

The P2Pool approach assumes that a separate mining blockchain is created for the pool purpose only. This internal blockchain has less difficulty than the main blockchain requires. As a correct block is found, all payouts are processed based on the amount of sidechain closed blocks. This case assumes that the mining pool hub setup is much more complicated because it has to take into account various rules and approaches.

Conclusion

In addition to various reward methods, pools can mine as one by using different approaches for mutual backup. Besides, pools can build a hierarchy to prevent hopping and protect themselves from losses. The choice of particular method is totally up to the pool owners. Wise coordinators will never take the biggest part of profit from mining, but at the same time they will prevent losses. This process always requires balance. It is quite possible that more flexible methods of reward distribution will be invented in the future.

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